James Douglas

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By JOHN FLOWERS

MIDDLEBURY — In his three previous successful gubernatorial bids, incumbent Middlebury Republican James Douglas has been able to cite a litany of priority issues to tackle while in office, including property tax reform, improving health care access and fixing the state’s roads and bridges.

This year, Douglas — and indeed other candidates for statewide office — are seemingly unified in rallying behind a single, dominant campaign issue: dealing with the sagging economy and its effect on the state budget.

Douglas is being challenged this year by Jericho Democrat Gaye Symington and Middlesex independent Anthony Pollina.

“The economy; that’s the major concern on the minds of everybody,” Douglas said during a recent interview at the Addison Independent. “It’s the top priority our state is going to face during the next couple of years.”

Thankfully, Douglas said, Vermont is contending with an economic slowdown that is less pronounced than other regions of the country.

“We have done well compared to other places, in terms of the national slowdown,” Douglas added. “Our banks are strong; they didn’t issue risky loans, to the extent that other states did. The foreclosure rate is low here. (Vermont banks) have cash to lend. Our financial system, locally, is in good shape.”

Still, Douglas noted Vermont is not “immune to the impact of what is going on around the nation and the world.”

Like Lt. Gov. Brian Dubie, Douglas noted the extent to which many elderly Vermonters are dependant on investment income that has been taking a hit in the stock market.

“One report I saw indicated we are number one in terms of the percentage of our income tax receipts that come from capital gains,” Douglas said. “So when those gains disappear, as they are likely to for the next year or so, our general fund revenues are going to take a hit.”

The governor noted Vermont is coming off a good quarter for general fund revenues — up $7.4 million from July through the end of September.

“But those are estimated tax payments that are going to be refunded in April when people are filing for their returns, and probably more,” Douglas said. “So I expect we are going to downgrade our revenue forecast when we meet next month.”

The state’s Emergency Board has traditionally met semi-annually to go over revenue estimates and make adjustments. But this year, the board has been meeting quarterly “because of the volatility of the economy and its effect on revenue performance.”

Douglas believes state officials may have to make more rescissions to the 2008-2009 general funds budget next month, based on sagging revenues. That would be in addition to the $24 million in cuts made last month and more than $4 million sliced from the transportation fund, Douglas noted.

Douglas wouldn’t hazard a guess on how much more would need to be cut to balance the state’s ledgers, but stressed “it’s important to make these adjustments as quickly as possible.”

The governor lauded the state’s Joint Fiscal Committee for being a willing partner in making tough budget decisions in recent months.

“We’re working well together,” he said.

Douglas said planners in his administration is already under orders to prepare a very frugal spending plan for fiscal year 2009-2010.

“The instruction I have given to each agency head, so far, is to come in with a draft budget down 5 percent for next year,” Douglas said. “That’s the bottom line. It means that we’ll have some upward pressures in certain areas — probably human service caseloads that we need to accommodate — so some we’ll have to tighten up more.”

Debt service, public safety and services for abused children are a few areas that Douglas wants to hold harmless from cuts.

The governor acknowledged that public safety has been a funding priority for his administration since he took office. He noted the Vermont Department of Public Safety budget has, over the last five years, gone up at a rate that is triple the overall general fund.

The increase in public safety spending, according to Douglas, has in part been a product of soaring gas prices; a crackdown on drug-related crime, which has demanded more staffing and overtime; and a focus on battling and preventing sex crimes.

“Overall, drug-related issues continue to rise,” Douglas said. “We have to take it seriously to make sure we’re not an easy mark.”

He remains opposed to increasing taxes to offset dwindling revenues, though he said he is “open to alternative structures of motor fuel taxes.” The governor acknowledged the recent drop in gas prices and said he was intrigued by the notion of allowing for a gas tax increase if the per-gallon price of fuel drops below a specific “trigger” price.

“I’m going to think about that,” Douglas said.

One penny on the gas tax raises around $3 million, according to Douglas. The gas tax helps fund improvements to Vermont’s transportation infrastructure. Douglas noted that, ironically, high fuel costs and successful public transportation programs have been reducing fuel sales and therefore state transportation revenues.

But Douglas believes some of the initiatives he proposed during the past two years have Vermont well positioned to weather an economic storm. Those initiatives included:

• A 15-point “economic stimulus package” that resulted in, among other things, a sales tax holiday weekend earlier this year. Other elements of the package included homeownership and mortgage assistance programs, investments in transportation jobs, job creation tax credits, low-interest capital for small businesses and start-ups, investments in downtown development and a “New Neighborhoods” affordable home construction initiative.

• An “e-State Initiative” aimed at creating a universal network of high-speed wireless phone and Internet services to cover all regions of Vermont by 2010.

Looking forward into the next biennium, Douglas hopes to further stimulate business and residential growth by providing tax incentives for businesses to refurbish and occupy now-vacant industrial sites; for entrepreneurs to create housing in the vacant upper-stories of downtown retail buildings; and for issuing an “innovation challenge” to Vermont-based companies to invent trailblazing products.

“The idea is to really spark some research and development here, not just with a tax credit, but with a reward,” Douglas said of the innovation challenge. “The example I have used is, if you are the first company to develop a car that gets 70 miles per gallon — or a component of that vehicle — in Vermont, then you can operate free of state taxes for 15 years. If you are the first one to develop a car that doesn’t use fossil fuel at all but gets the same amount of horsepower capacity as what we’ve got now, same deal.”

Other issues discussed by Douglas during the interview included:

• Energy.

“It’s quite obvious that Vermonters want us to move toward greater use of alternatives to independence — to the extent that is possible,” Douglas said.

Vermont will need to be careful in charting its energy future, Douglas said, given the soon-to-be expiring Vermont Yankee and HydroQuebec contracts. Those two sources account for two-thirds of the state’s electricity.

“We have to look at this in the bigger context of cost and affordability, too,” Douglas said. “We’ve gone from having the highest electric rates in New England to the lowest, in five years. There are two reasons — Vermont Yankee and HydroQuebec. We want to address the safety issues at Yankee before the license is extended, but economically, that’s been a real plus for us. It has also allowed us to maintain the lowest emission portfolio in the country.”

Douglas supports the ongoing independent study of Vermont Yankee. That study will culminate in a report due this January, which should go a long way in determining whether the facility gets re-licensed, according to Douglas.

• Health care.

Douglas is pleased that Vermont has been able to provide health care coverage to another 11,000 previously uninsured Vermonters since last November, through programs like Catamount Health and other state programs.

“I think we’re making some real progress, but we’ve got to keep at it,” Douglas said. “I’d like to find ways to insure everybody and to address the premium increases … I don’t think there’s any quick fix.”